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Fitch Affirms ING's Covered Bonds at 'AAA'/Stable Following Programme Update
February 25, 2014 / 3:56 PM / 4 years ago

Fitch Affirms ING's Covered Bonds at 'AAA'/Stable Following Programme Update

(The following statement was released by the rating agency) LONDON, February 25 (Fitch) Fitch Ratings has affirmed ING Bank N.V.'s (ING, A+/Stable/F1+) EUR29.9bn hard-bullet covered bonds at 'AAA' with a Stable Outlook following a review of changes to the programme documents. ING has updated various programme documents to incorporate the latest legal and regulatory requirements. In addition, the total return swap has been merged under the same ISDA Master Agreement as the interest rate and structured swap, resulting in all transactions netting out into one termination amount when closing out. The selected assets required amount (SARA) and supplemental liquidity reserve amount (SLRA) clauses have also been removed from the programme. Fitch has reviewed the various programme documents that incorporate the changes, which were signed by the issuer on 24 February 2014. There is no impact on the programme's current Discontinuity Cap (D-Cap) of 4 (moderate risk) as the updates are in line with the agency's counterparty criteria. KEY RATING DRIVERS The 'AAA' covered bond rating is based on ING's Long-Term Issuer Default Rating (IDR) of 'A+' and an unchanged D-Cap of 4. The D-Cap continues to be driven by Fitch's risk assessment as moderate for three out of five components: asset segregation, liquidity gap & systemic risk, and the privileged derivatives components, which are the joint weakest D-Cap components. The systemic and the cover pool specific alternative management components are assessed as low risk. The moderate risk assessment for the liquidity gap & systemic risk component reflects Fitch's view of mitigants against liquidity gaps in the form of a three-month interest reserve fund and a 12-month pre-maturity test for the hard bullet bonds. The 'AAA' breakeven asset percentage (AP) decreases to 77.0% from 81.0%, although the total overcollateralisation (OC) available to bondholders has hardly changed, as the decrease mainly mirrors the removal of additional OC that was provided by the SLRA. The SARA clause restricts the use of assets that can be selected for a sale to fund a maturing covered bond to the proportion of that outstanding bond amount in relation to the total principal balance of all outstanding covered bonds. The SLRA is an amount of mortgages not subject to the pro-rata restrictions of the SARA clause, sized for in the asset coverage test (ACT), and which can be used to redeem any bond. The SLRA was set at 5%. Under Fitch's covered bond rating criteria, the agency relies on the AP used in the calculation of the ACT and communicated in the investor report. The issuer has updated the AP to 77.0% from 80.2%, which is the same level as Fitch's 'AAA' breakeven AP for the rating. At end-January 2014, the cover pool consisted of 443,254 mortgages with a total outstanding balance of EUR41.6bn, down from EUR42.4bn in November 2013. The cover assets have a WA life of 21.2 years and the pool is well-seasoned, with a WA seasoning of 8.3 years. Fitch has calculated the pool's expected loss at 8.8% in a 'AAA' scenario. There are currently 166 bonds outstanding issued in euro, US dollars, Norwegian krone and Swiss francs, for an equivalent amount of EUR29.9bn. The WA spread on the bonds is 66bps over EURIBOR. The WA life of the bonds decreased to 7.2 years from 7.4 years in December 2013. Interest and currency risk is hedged internally with ING. RATING SENSITIVITIES The rating would be vulnerable to downgrade if any of the following occurs: (i) ING's IDR is downgraded by at least three notches to 'BBB+' or below; or (ii) the D-Cap falls by at least three categories to 1 (very high risk) or 0 (full discontinuity); or (iii) the AP that Fitch takes into account in its analysis increases above the 'AAA' breakeven AP of 77%. Given the dynamic nature of the programme, the composition and credit quality of the cover pool may change over time. The Fitch breakeven AP for the covered bond rating will be affected, among others, by the profile of the cover assets relative to outstanding covered bonds, which van change over time, even in the absence of new issuances. Therefore, it cannot be assumed to remain stable over time. Contacts: Primary Analyst Kevin Vanistendael Analyst +44 20 3530 1564 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Stephen Kemmy Associate Director +44 20 3530 1474 Committee Chairperson Cosme de Montpellier Senior Director +44 20 3530 1407 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: Additional information is available at Applicable criteria, 'Covered Bonds Rating Criteria', dated 04 September 2013, 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 13 May 2013, 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 13 May 2013, 'Covered Bond Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum', dated 03 June 2013,' EMEA Residential Mortgage Loss Criteria', dated 06 June 2013 and EMEA Criteria Addendum - Netherlands', dated 13 June 2013 are available at Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum here EMEA Residential Mortgage Loss Criteria here EMEA Criteria Addendum - Netherlands - Mortgage Loss and Cash Flow Assumptions here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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